Your plan to be debt-free

Deciding to tackle your debt can seem overwhelming. The first step is to make the decision to be debt-free; the next step is to identify a plan to get there.

What are your debts?

Create a list of all your debts because it is important to realize the total amount you owe. For each debt, list the total amount owing, the minimum monthly payment and the interest rate. Your list could include:

  • mortgage(s)
  • credit card balance(s)
  • cash advances
  • line of credit balance(s)
  • payday loans
  • taxes owed
  • buy-now-and-pay-later balance(s)
  • unpaid bills (cell phone, hydro)
  • personal loans such as car loans
  • student loans
  • loans from friends and family
  • alimony and/or child support owing.

How much is your debt costing you?

Part of managing your debt is understanding how you got there. When you made a purchase in the past, did you consider the total cost of the item? If you could not pay for the purchase in cash and needed to borrow money, the total cost was probably higher than the sticker price.


You buy a $2,000 TV with your credit card with an interest rate of 18 percent. In scenario 1, you pay a set monthly payment of $40. In scenario 2, you pay a set monthly payment of $100. In scenario 3, you take advantage of the interest-free grace period and pay off your balance in full by the statement due date.

  Scenario 1: Set monthly payment of $40/month Scenario 2: Set monthly payment of $100/month Scenario 3: Paid off in full at time of purchase
Original balance $2,000.00 $2,000.00 $2,000.00
Interest paid $1,724.47 $395.65 $0.00
True cost $3,724.47 $2,395.65 $2,000.00
Time to pay off 7 years and 10 months 2 years 0 days

Ideally, consumers should save in advance for large purchases as illustrated in scenario 3. By having the money to pay for the item in full you avoid:

  • taking on consumer debt
  • paying any interest
  • the burden of monthly debt payments.

It is also important to understand how much of each payment goes to the principal, the amount of money that you borrowed from a lender, and how much goes to interest.

In scenario 1, the majority of your payments went toward the interest, and not the principal, for almost four years of the payback period.

However, in scenario 2, more than 70 percent of your payments went toward the principal from the beginning of the loan. This is why you paid off the balance so much faster in the second scenario.

To figure out how long it will take you to pay off your credit card balance, try FCAC’s Credit Card Payment Calculator. This tool shows you how long it will take to pay off your credit card balance if you only make the minimum payments, and how to pay off your credit card faster and pay less interest.

Decide on a strategy

The types and amount of debt you have will affect the strategy you choose to try to pay it off. You may choose to tackle your debt by yourself, or get help using a third party such as a reputable credit counsellor. No matter what strategy you choose, make sure the plan is achievable and realistic.

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